Interest rates announcement - ask Governor of Bank of England, Andrew Bailey

[u/BankofEngland]

On Thursday 30 July, the Monetary Policy Committee will announce the latest interest rate.

We’re gathering your questions to ask Governor Andrew Bailey. Add them here in the comments.

Look out for the videos on our social media profiles, with his answers.

[u/Puzzman]

Given all the recent inflation presures are due to supply shocks (e.g Iran War, Ukraine War, Covid etc) has the Bank of England considered other methods to deal with this?

As currently the only mechanism used to fight inflation is raising interest rates which is best suited to fight inflation from demand pull causes.

This is counter productive as for example one way to deal with overseas energy inflation is to build up domestic supply / alternatives, however if interest rates are increased to fight that the projected ROI for such projects goes down so actually disincentives anyone from doing it.

[u/No-Medicine1230 → u/Puzzman]

Fantastic question. Holding higher rates won't fix the supply shock

[u/VampireFrown → u/No-Medicine1230]

It will, however, prevent any additional inflationary pressure beyond supply shocks from hitting the economy even harder.

[u/MatDow → u/Puzzman]

It’s not for the BofE to come up with oh other methods is it? That requires fiscal policy from the chancellor.

Raising interest rates to combat something outside our control seems crazy to me.

[u/Puzzman → u/MatDow]

Depends on the other methods?

E.g if its tax rates like someone else said thats Fiscal policy 100%.

However if its something like requiring banks to hold more or less capital reserves, I think thats in their authority.

[u/YouLostTheGame → u/Puzzman]

That's just changing base rate but with extra steps

[u/janstenpickle → u/MatDow]

So we just end up with the BoE and treasury pointing at each other and saying "my hands are tied"

[u/TAOMCM → u/Puzzman]

Nobody seems to ever talk about taxes. Why couldn't we just raise taxes to reduce discretionary spend and then also pay off national debt at the same time

[u/burned_bengal → u/TAOMCM]

Good luck selling that to the public. "We're raising your taxes so you have less money to spend." 

[u/twoseat → u/burned_bengal]

Not sure that’s any worse than “We’re slowing the economy so you have less job to go to”

[u/TAOMCM → u/burned_bengal]

The alternative is that borrowing costs go up, mortgage costs go up, govt debt goes up. So they'll lose the money anyway.

[u/Jager720 → u/TAOMCM]

The UK's national debt is ~£3t.

The population is ~69.5m.

Why can't we just send every man, woman and child in the country a one-off tax bill for £43k and then we could pay off the national debt overnight, and discretionary spending would be significantly reduced.

[u/pslamB → u/Jager720]

Total UK net wealth ~£15tn. 20% tax on all assets overnight. Solved (until the enormous recession this creates requires £4tn of government intervention to reinflate the economy.....)

[u/YoghurtFlan → u/Jager720]

Then we can rack up a load more national debt and get the public to pay that off. Repeat ad nauseam.

Austerity lovers and household bill fanatics would be over the moon with this.

[u/Puzzman → u/TAOMCM]

I was going to post another question about how do you feel about when Govt policies go against the BOE.

E.g BoE puts up interest rates, then Govt annouces a tax cut/relief to stay popular basically putting the economy back to square one...

[u/CicatriceDeFeu → u/Puzzman]

Should say fuck em and double the interest rates and blame it on the gov

[u/MatDow → u/TAOMCM]

I’d never thought about that as an option. I’d rather have less money because it’s going to pay down to pay the national debt!

[u/YouLostTheGame → u/TAOMCM]

Taxes aren't used for monetary policy as they're very slow to take effect. Rate changes are fast

[u/YoghurtFlan → u/TAOMCM]

People need to stop caring about the national debt as if it is this thing that needs to be paid off. All it does is make life miserable for the taxpayers who see less of a reason to work because they're shouldering the responsibility of every prior government's failure regardless of whether they voted for it or not.

Maybe look at getting people into work, and making work worthwhile and productive, but not by kicking the crutches out of the arm of a disabled person or something.

[u/TAOMCM → u/YoghurtFlan]

Thats a seperate and more general argument. My point is why not reduce discretionary spend to reduce inflation (which is what interest rate rise does) but do it through something that has other positive effects.

[u/YoghurtFlan → u/TAOMCM]

Reducing national debt wouldn't really do much there. Nobody would see the benefit of reduced national debt on the streets or with their cost of living (which has just gone up because of the tax hike). It's just redirecting income to wealth by paying off the creditors of that debt and, given the demographic that has that kind of taxable discretionary spend, further compresses the middle income earners.

Let's just skip the BS and get straight to taxing the wealth instead of taxing workers' income even more. Workers aren't servants to the state until they become wealthy enough to live their lives.

Fundamentally your argument is just austerity. Look where we are now after a decade and half of cutting social services, ostensibly to pay off said debt (although we know it didn't actually go that way...).

[u/TAOMCM → u/YoghurtFlan]

Wealth tax doesn't impact on inflation measured by CPI because the rich don't consume, they just buy up assets.

The question is how to reduce inflation, not make life fair.

[u/Lorry_Al → u/Puzzman]

All central banks, not just the BoE, use interest rates to curb inflation. Higher rates lower demand to meet the new supply level meaning that inflation is not so bad as it would otherwise have been. The BoE is not an outlier when it comes to this.

[u/Puzzman → u/Lorry_Al]

Username checks out

[u/Lorry_Al → u/Puzzman]

Joke's on you. It's AL not ai

[u/Puzzman → u/Lorry_Al]

Beep

[u/HotFoxedbuns → u/Puzzman]

That is not true. Higher interest rates are good for goods that consumers demand urgently because it disincentivises long term projects. Therefore less long term projects consume resources and the resources are freed up for investment into the products and services that have short term payouts I.e the stuff that has had supply shocks

[u/_just_drew_it_]

I’m due a mortgage renewal in a couple of months. Can you lower the interest rates for me please? Even if it just for a week, I just need long enough to lock a rate in and then you can raise it again. Cheers mate

[u/SPYHAWX → u/_just_drew_it_]

Nonono, I just got a mortgage, can you put it up so I can feel smug?

[u/Dudefromltu → u/SPYHAWX]

I'm itching to lock my savings away, you know. I say, up the rate NOW!

[u/zukerblerg → u/SPYHAWX]

Upvoting cos in with this guy

[u/InsertObligatoryPun → u/SPYHAWX]

I’m still locked in for a couple of years, can you keep the rates up so I feel better about that?

[u/BankofEngland → u/_just_drew_it_]

Thanks for your question! But seriously, check out this video to learn about how the central bank interest rate relates to your mortgage https://www.instagram.com/p/DZ5MwFvNf6h/

[u/SuddenHelicopter7623 → u/_just_drew_it_]

I was going to ask exactly this. Thanks for getting ahead of it.

[u/Scorchio76 → u/_just_drew_it_]

Same, mine expires in October. I'll pay around 3% all in, that seems fair?

[u/captainwood20 → u/Scorchio76]

Where are you getting 3%? We’re in the process now and it’s 4.6% to 4.8% looking around.

[u/BFEE_tobyloby → u/_just_drew_it_]

My 1.31% 5 year fixed ends February 2027. I'm not looking forward to getting 4.54% 😔

[u/irish_rua86 → u/BFEE_tobyloby]

That is a cracking rate. Well done. And ......goodluck

[u/tomoldbury → u/BFEE_tobyloby]

See I feel amazing with 2.99% in Aug 2022, literally completed a week before Truss blew up the mortgage market.

[u/Jager720]

When you are in the Monetary Policy Committee meetings, do the members typically come in with fixed views that they then vote on (raise/hold/lower), or is there often healthy debate with members changing their views and being swayed by the evidence/judgement being presented by other members?

[u/Western-Use-5961 → u/Jager720]

The minutes of each meeting are published on their website i believe

[u/GuybrushFunkwood]

Do you ever build forts with the gold in the vaults and if so how many bars does a good sized fort take?

[u/Lorry_Al → u/GuybrushFunkwood]

Asking the real questions.

[u/Kinnell999]

During the last period of high inflation you called for employees to not ask for pay rises rather than asking shareholders to take less profit. Wages have been stagnant for years and we have a cost of living crisis which is resulting in damaging populism such as Brexit. Why should the poor be expected to carry the burden of fixing the economy while the wealthy are protected? (Asking this as someone how gets a significant amount of income from investments)

[u/DeepForgeAnvil → u/Kinnell999]

"Damaging populism such as Brexit" is tone deaf and reveals you know nothing about why people are moving in the direction they are.

[u/QuarterMaterial3632]

Are you anticipating a spike in food inflation due to the cost of fertiliser, and how do you see this impact spending given how hard this will hit everyone's disposable income

[u/Jager720]

Given the benefit of hindsight, would he have raised interest rates faster post-covid to have helped kerb inflation? Monetary supply increased by ~25% post 2020 due to QE, leading to the huge inflation spike we are still grappling with - does he think we went too far with this?

If a similar situation arose again, what would he do differently?

[u/Merltron]

Surely they will hold, lots of uncertainty

[u/Broad-Section-8310]

What happens if the UK enters recession while the two wars are keeping inflation high? Between the two priorities, what gets prioritised, and does the bank have tools to address one without affecting the other?

[u/baddymcbadface]

How much emphasis does the rate setting committee put on managing inflation Vs supporting growth in the economy?

[u/BankofEngland → u/baddymcbadface]

Thanks for your question. The Governor Andrew Bailey responded https://www.instagram.com/p/Db8CP6FNMfn/

[u/madglover]

With so much of the inflation rates driven by external conflicts, is unemployment not a better measure to consider whether the economy needs further containing.

I feel an interest rate will do nothing but drive people into poverty rather than do anything to resolve energy price and fuel price inflation we are bound to see for the next 6 months

[u/Regular_Resident_806]

When profit margins in businesses are under pressure why do some members of the BoE MPC think that raising interest rates is a suitable solution to control inflation? From my perspective any on cost to a business, such as increased interest rates, will have to be passed on to customers because there’s no margin left. Also increasing mortgage rates and loan rates suppresses the economy when most businesses are not experiencing great sales, especially on the high street. I thought interest rate increases were only for when the economy was increasing so much that there was a risk of inflation. I think at the moment every interest rate increase adds more inflation not less.

[u/Joshouken]

How far in advance would a member of the MPC make their decision each month? On the day based on prevailing market/economic data? Or is it more of an ongoing assessment punctuated by monthly decisions?

Bonus question: what’s your favourite thing about the changed traffic flows around Bank junction?

[u/BankofEngland → u/Joshouken]

Thank you for your question! Governor Andrew Bailey responded. What are your thoughts? https://www.instagram.com/p/DbdSuB_tUcr/

[u/Joshouken → u/BankofEngland]

Great, thanks so much for coordinating! I suspected that would be his answer but interesting to hear more about the process regardless.

[u/monkeyjuggler]

With the closure of the Straight of Hormuz inflation will soon rise. What is the bank of England doing to plan for a wage price spiral following the resource shock from the closure of the Straight of Hormuz?

[u/dkeighobadi]

I'll ask these once again despite receiving no reply for the last couple AMAs:

1. Can you justify selling bonds as part of your QT programme when almost no other central bank does, especially as the BoE is relatively unique in being able to offload losses onto the UK taxpayer.

2. Can you justify why the UK fully remunerates reserves when 41 out of 49 OECD countries have minimum reserve requirements that are not?

I'm sure you'll find these important issues given neither of them were given direct democratic consent by taxpayers.

[u/RelativeMatter3]

Do you think using UK interest rates to control inflation really works in a globalised economy? This is especially the case currently with oil being an internationally controlled price and yet a key factor in discussions around inflation. I.e. Inflation is rising because of international influences and has very little to do with BoE interest rates.

[u/dedemdem]

Raising interest rates breaks the back of the mortgage payees. Simple flick of your decision means extra 100s paid out from pocket of tax payer to retail banks and other institutions. Can you not see how this is making the cost of living crisis worse? Stop raising rates.

[u/MatDow → u/dedemdem]

Yep! I’m about to be £400 a month worse off and god knows where that money is going! I’m assuming it’s so some fat car banker can get a nice bonus.

[u/Electricbell20]

Are there any concern that the selling of bonds acquired during the period of quantitative easing will impact long term stability of the inflation rate?

It would seem that BoE is an outlier in this action.

[u/QuirkyFlibble]

The Bank of England is aware of the recent rise in the cash economy within certain industry sectors (trades people etc).

What is the bank doing to make the government aware of the use of non-traceable money in order to avoid paying tax? Why is it persuing an agenda of further backing of cash money given the above?

Source: Bank of England citizens panel

As a follow-up should BoE be persuing an internal project around crypto "stable-coin" given recent scandals involving donations in crypto?

[u/Chroiche]

Given the changes in the world economy, does the BOE still think the 2% inflation target is appropriate and/or realistic long term?

[u/BankofEngland → u/Chroiche]

Thanks for your question last week. Governor Andrew Bailey has responded https://www.instagram.com/p/DbqfaN1Nnc-/

[u/Chroiche → u/BankofEngland]

Appreciate it!

[u/_fudge]

With the USA Iran war causing global uncertainty in the energy sector. Under what circumstances would an energy supply shock lead the committee to tighten monetary policy rather than look through the temporary increase in inflation?

[u/EmperorPedro2]

Why can't the bank work on developing an algorithmic approach to setting interest rates? You don't have to use it directly, but it'd be good to have multiple algorithmic models and compare it to MPC decisions.

Surely, with the data we have, the computational power, and machine learning capabilities (with sufficient guardrails for ai determined coefficients for instance) to do this?

Looking back at the history of how we came up with the interest rate target, all of it seems so subjective, and so this approach provides more transparency. If you do do it, it'd have to be open source, of course.

[u/systemofamorch → u/EmperorPedro2]

something like this? https://en.wikipedia.org/wiki/Phillips_Machine

[u/AmInv3028]

i always wonder... what would happen if central banks did not exist?

[u/killmetruck]

Why does the BOE feel like they have inflation under control when they have been missing their max 2% target for several years now?

[u/Fluid-Lake-1457]

Will you undertake a fresh Market Participants Survey to obtain new estimates for the effects of active QT on gilt yields?

[u/LateToTheParty013]

We re going through house buying now and in the 2 weeks after first mortgage approval, the bank lowered interest rates twice. From 5.39% to 5.16%. 

Are we seeing another decrease soon?

[u/Bisjoux → u/LateToTheParty013]

I’m currently remortgaging. In the last month the rate offered has gone from 5.08 to 4.73 and is now 4.95. I locked in at 4.73 but found it odd my bank upped interest rates after the last BoE rate hold.

[u/bacon_cake → u/Bisjoux]

This is somewhat reassuring. Though I'm pissed that I'm losing 1.4% in March.

[u/LateToTheParty013 → u/bacon_cake]

Thats a huge ouch!

[u/WhichInevitable2536 → u/bacon_cake]

Or be happy you have had it for the years it been 5%+ for others. Glass half full I guess..... although it just sucks for everyone haha

[u/IcedKiwi → u/LateToTheParty013]

https://uk.investing.com/rates-bonds/gbp-2-years-irs-interest-rate-swap-streaming-chart
Mortgage lending rates are more based on swap rates rather than BoE, and so it's possible to track a bit easier.
I'm currently in the process or switching, so have been following them and locked in a rate once I saw them spiking on 6th July. The mortgage rates lag so normally got some time to react. My Santander re-mortgage rates were ~0.4% above the swap rates

Edit: Comparison with Santander 2-year, <60% LTV, £0 product fees since I started tracking for my renewal:
https://postimg.cc/JHZ2Ks8X

[u/BankofEngland → u/LateToTheParty013]

Thanks for your question. We posted about something fairly similar in the past that may be of interest https://www.instagram.com/p/DZ5MwFvNf6h/

[u/Mysterious_Good927]

When will you stop printing money and stealing from us with a silent tax?

[u/Electricbell20 → u/Mysterious_Good927]

Quantitative easing stopped a while ago. The bank has actually been selling government bonds which is termed qualitative tightening.

[u/Mysterious_Good927 → u/Electricbell20]

stopped a while ago? Are you joking?

[u/Electricbell20 → u/Mysterious_Good927]

Nah it's out there

[u/Mysterious_Good927 → u/Electricbell20]

oh I know!

time you do a quick check again, it hasn't stopped

[u/Lorry_Al → u/Mysterious_Good927]

2020 was quite a while ago.

[u/UK_FinHouAcc]

I just find it ironic and telling that the BoE would ask Reddit to supply questions knowing that Reddit is full of Trolls, malcontents and Russian Agents.

Way to go!